Where Does an Algorithm Cause Damage? The Place of the Algorithmic Effect in EU PIL

This post was contributed by Volodymyr Ponomarov, who is a Legal Assistant at the Bergwill Group, Geneva and a doctoral candidate in private international law, Jean Moulin Lyon 3 University.

A job applicant domiciled in Belgium applies for a position in Lyon. A French employer screens applications with a ranking tool supplied by a German provider and running on servers in the Netherlands. The applicant is ranked low and excluded before any interview. Four Member States are connected to the facts. Which of them matters for the purposes of Article 7(2) of the Brussels I bis Regulation and Article 4(1) of the Rome II Regulation?

Technical Geography v Legal Localisation

Algorithmic systems routinely separate the place where an output is generated, the place where data are processed and the place where that output affects a legal relationship. Each is a tempting connecting factor, and each is problematic. The place of processing is particularly unstable: a provider may switch cloud service providers without the legal relationship at issue changing at all. Tying jurisdiction to infrastructure would make the forum move with the servers, which hardly squares with the particularly close connecting factor on which special jurisdiction rests (flyLAL, C-27/17, para 27).

The claimant’s domicile is no better candidate. Since Marinari, C-364/93 and, for Rome II, Lazar, C-350/14, only the initial damage counts, not its repercussions felt elsewhere.

Who Is the Defendant?

The question becomes more difficult once one asks against whom the claim is brought. The French employer can in principle be sued in France at its domicile. The real issue is the German provider. Here Coty Germany, C-360/12 is instructive: jurisdiction at the place of the event giving rise to the damage cannot be founded on another participant’s acts, but the place where the damage occurred remains available. Applied to an algorithmic chain, the employer’s use of the tool in France does not locate the provider’s causal event in France, but it may still locate the damage there.

The Place of the Algorithmic Effect

I suggest that, in such cases, the place where the damage occurs should be understood as the place where the algorithmic output becomes legally operative within an identifiable legal relationship. A credit score is not harmful merely because it is computed; it becomes legally relevant when it is used to refuse or reprice a loan. A ranking is not harmful merely because it is produced; it becomes legally relevant when it excludes an applicant from access to a given job.

This is neither a new head of jurisdiction nor a new conflict rule. It is an interpretive tool for ranking territorial contacts that already exist, and it builds on existing case law. In VKI v Volkswagen, C-343/19, the damage linked to the acquisition of a vehicle fitted with emissions-manipulating software materialised where the vehicle was bought at a price above its actual value, not where the software had been installed. The proposed notion goes one step further: it requires neither an affected market nor the acquisition of goods, but looks at the individual legal relationship in which the output is used.

It also serves foreseeability on the provider’s side. A provider cannot anticipate every remote consequence of its system. But when a tool is supplied for use in recruitment, credit or healthcare on a given market, the provider can reasonably anticipate where its outputs are meant to take effect – much as, in VKI, the manufacturer could expect litigation where its manipulated vehicles were marketed.

Qualification Matters

Two caveats are necessary. First, the nature of the claim must be identified. If the applicant challenges the processing of personal data as such, Article 79(2) GDPR provides its own jurisdictional rule. Second, an applicant excluded before any contract is concluded is in a pre-contractual situation. Under Brussels I bis, Tacconi, C-334/00 points towards matters relating to tort. Under Rome II, however, Article 12 may lead to the law that would have governed the contemplated employment contract – under Article 8 Rome I, ordinarily the law of the country of habitual work, French law in our example. Whether algorithmic exclusion, particularly when framed as discrimination, falls within Article 12 remains open to debate; if it does, the result converges with the place of the algorithmic effect.

The AI Act Angle

The AI Act is not a PIL instrument, and Article 2 is not a jurisdiction rule. Yet Article 2(1)(c) extends the Regulation to third-country providers and deployers where the output produced by an AI system is used in the Union. As Marion Ho-Dac noted on this blog, this raises predictability questions for providers. It also shows that EU law already treats the use of an output as a territorially relevant fact. Private international law may usefully draw on the same intuition without confusing the two functions.

This approach differs from recent proposals, such as Curzio Fossati’s analysis, to introduce new heads of jurisdiction and conflict rules for defective AI systems. Algorithms that work exactly as designed may still contribute to contested decisions, and product liability does not capture these cases. With the proposal for an AI Liability Directive formally withdrawn on 6 October 2025, the existing instruments will have to do the work for the foreseeable future.

Limits

The notion is no magic formula. The more human discretion intervenes between output and decision, the harder it becomes to isolate an algorithmic effect. Platform-based relationships may lack a single territorial anchor. And locating the damage says nothing about who is liable: where the damage occurred and who must answer for it remain two distinct questions.

Distributed systems do not abolish territory; they simply make it less plausible that any single technical element will reveal it. The decisive question is perhaps not where the algorithm is, but where its output becomes legally operative for the person it affects.